Investors are individuals and cannot be emotionless beings when they are faced with the volatile swings in the markets. I came across this chart below from Streettalk Live. The breakups, and makeups, with the markets are clearly shown in the chart below. It shows the emotional cycle that investors go through with the markets.
It makes a “buy and hold” strategy rather difficult to stick to. One way to address such kind of market volatility is by a dollar cost averaging strategy. Dollar Cost Averaging is a strategy in which an investor places a fixed dollar amount (or indeed any other currency) into a given investment such as a unit trust, on a regular basis. The investment generally takes place each and every month regardless of what is occurring in the financial markets. As a result, when the price of a given investment rises, the investor will be able to purchase fewer units. When the price declines, the investor will be able to purchase more units.
Blogging My Stock Investments 